Canon cuts profit outlook, signals euro pain for Japan Inc

<p>A logo of Canon Inc is pictured at the 3D and Virtual Reality Expo in Tokyo June 20, 2012.Yuriko Nakao</p>

TOKYO (Reuters) - Canon Inc trimmed its full-year operating profit outlook, buffeted by a euro zone crisis that has sent the yen surging and sapped demand from a key overseas market, boding ill for earnings prospects in Japan's export sector.

Canon, long one of Japan's most profitable technology companies with its aggressive cost-cutting, is also among the first major Japanese companies to report quarterly earnings and is under scrutiny for early signs of how the euro zone's woes could reach Japanese shores.

"It was expecting a recovery from last year's quake, but they've been hit instead by the European recession and no one is expecting a quick resolution to those problems," said Hajime Nakajima, deputy general manager at Iwai Cosmo Securities.

Canon's shares have already been knocked to a three-and-a-half year low this week as the euro's slide against the yen heightened worries about its earnings.

The printer and camera maker lowered its full-year operating profit forecast to 390 billion yen ($5 billion), down from a previously forecast 450 billion yen and barely above its 378.1 billion yen result last year, when Japanese corporate earnings were battered by the March 11 earthquake and tsunami.

The company also posted an operating profit of 92.6 billion yen for the April-to-June quarter, up 18 percent from a year earlier but missing the average forecast of 107.4 billion yen in a poll of six analysts by Thomson Reuters I/B/E/S.

EURO WOES

Canon, which makes 80 percent of its revenue overseas, also cut its forecast average euro rate for the full year to 100 yen from its prior estimate of 105 yen.

The maker of IXY and PowerShot cameras, which competes with Nikon and Sony Corp, said foreign exchange rate movements cut 21.2 billion yen from its operating profit in the April-to-June quarter.

"We are not seeing any actual impact (from the euro-zone crisis) in the first half of the year," he added.

But citing the company's travails during the post-Lehman crisis, he said it would feel the impact of overseas financial turmoil in business machine leases and sales.

"We are going to remain very cautious in our plans going forward," he said.

In the office machine sector, which generates more than half of Canon's revenue, rival Xerox reduced its full-year profit target last week after second-quarter results were hit by a sharp drop-off in technology spending in Europe.

Fellow printer-maker Lexmark International Inc also warned of weaker annual results this week and a company executive told Reuters its sales were likely to be hurt by weak European spending for the remainder of the year.

Shares in Canon ended down 0.9 percent at 2,678 yen ahead of the results announcement, after slipping to their lowest intraday level since March 2009 as the euro slumped against the yen. The stock has shed more than 20 percent this year.

Tokyo's benchmark Nikkei average slipped 1.4 percent on Wednesday and is little changed since the start of the year.

"I think there's quite a big chance of the stock being bought back because it's been knocked down recently, but of course the euro zone problems are still hanging around, making it unclear whether it will rise beyond that," said Masayuki Doshida, senior market analyst at Rakuten Securities.